Planning for care costs
From Tax & Technical Aug 9 2010 BY: Simon Danaher
, Online News Editor
, International Adviser
Many individuals requiring long term care are eligible for a non means tested contribution towards nursing care. In Scotland, this also applies to personal care. However, individuals are expected to pay for the additional costs of their long term care if they have capital exceeding specified limits.
The surrender value of any life insurance policy is disregarded when a local authority is deciding whether an individual has capital exceeding these limits.
This treatment might change following a Department of Health consultation which ended in June 2010. It is anticipated that the disregard will continue for any policies issued before the date any revised regulations come into force.
What does this mean for life insurance investment bonds in the meantime? The 2010 edition of the Charging for Residential Accommodation Guide (CRAG) still states that if an investment bond is written as one or more life insurance policies which contain cashing-in rights by way of options for total or partial surrender, then the value of those rights has to be disregarded as a capital asset in the financial assessment for residential accommodation.
CRAG also points out that the surrender value of investment bonds without life insurance, such as capital redemption bonds, is not disregarded.
Intention is key
If an individual gives away assets or converts them with the intention of avoiding assessment, they can be treated as still possessing the capital value of the asset given away or converted. This is the deliberate deprivation rule. CRAG specifically refers to purchasing an investment bond as an example of a situation where an individual has deprived themselves of capital. CRAG advises local authorities to consider, on a case by case basis, whether an individual has invested in an investment bond so that their capital is disregarded.